A loan against mutual funds lets you borrow from a lender by pledging (lien-marking) eligible mutual fund units. Your investments stay invested while you access funds for a short-term need.
The amount you can borrow is a percentage of your units' value — typically lower for equity funds than for debt funds. Interest is charged on the amount used, and the pledged units cannot be redeemed until the loan is repaid or the lien released.
Where it may fit
- Short-term liquidity needs where selling would disrupt a long-term plan
- Avoiding capital gains from an unplanned redemption
- A potentially lower-cost alternative to personal loans or credit cards
Things to consider
- If fund values fall, the lender may ask you to repay part of the loan or pledge more units
- If you can't, the lender may sell your units
- Interest and processing charges apply; repayment is your obligation
- Borrowing to invest further can magnify losses
Use with care. This is a borrowing product. Only consider it with a clear repayment plan.
How it works
- Choose eligible fundsThe lender accepts units from approved schemes, held in your name.
- Pledge the unitsA lien is marked on the units through the registrar, usually online in minutes.
- Get a credit limitYou receive a limit based on a percentage of the units' value — lower for equity funds than debt funds.
- Repay and releaseInterest is charged on what you use. Once repaid, the lien is removed and units are free again.
An illustrative example
Example — illustration only, not an offer
Suppose you pledge equity fund units worth ₹10,00,000 and the lender allows borrowing up to 45% of value. Your limit is about ₹4,50,000, and you use ₹3,00,000.
If markets fall 25%, your units are worth ₹7,50,000 and the limit drops to about ₹3,37,500 — still above your loan. If they fall 40%, the limit drops to ₹2,70,000, below your ₹3,00,000 loan. The lender can then ask you to repay the difference or pledge more units, and may sell units if you can't.
Actual borrowing limits, interest rates and charges vary by lender and scheme.
When it may — and may not — make sense
May make sense
- A short-term cash need with a clear repayment source
- Avoiding a large redemption with tax or exit-load impact
- Replacing costlier personal loans or card debt
Usually doesn't
- Funding regular living expenses
- Borrowing to invest more in the market
- When repayment depends on uncertain income
Questions people ask
Do my investments keep growing while pledged?
Yes. The units remain invested and continue to rise or fall with the market. You just can't redeem them until the lien is released.
Is the interest rate lower than a personal loan?
Often, because the loan is secured. Rates and charges vary, so it's worth comparing offers before borrowing.
What is a margin call?
If the value of pledged units falls below the required level, the lender asks you to repay part of the loan or pledge more units. If you don't, units may be sold.
The information on this page is educational and general in nature. It is not a recommendation to buy or sell any product. Investments are subject to market risks; read all scheme-related and offer documents carefully. Suitability depends on your individual circumstances.
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